Finance Leasing Manual - FLM6.57

Acceleration of capital allowances

Finance lessors used subsidiaries with different accounting dates to accelerate allowances on machinery and plant. By writing the lease from a subsidiary whose accounting period was about to end, allowances could be brought forward by up to 12 months. Section 44 F(No 2)A 97 counters this by restricting the capital allowances available to lessors on machinery and plant leased out under a finance lease for the chargeable period in which the expenditure is incurred rateably from the date it is incurred. For example if expenditure is incurred 90 days before the end of the period, the writing down allowance is restricted to 90/365 of the annual rate.

Section 44 F(No 2)A 97 only applies to machinery and plant leased out under a finance lease. Capital allowances on machinery and plant leased out under an operating lease is not affected.

Section 44 F(No 2)A 97 works by limiting the expenditure that is added to the pool for the chargeable period in which the expenditure is incurred in proportion to the part of the chargeable period from when the expenditure is incurred. For example, if expenditure is incurred 90 days before the end of the chargeable period and the chargeable period is 400 days long, the amount added to the pool is restricted to 90/400 ths of the expenditure. As the rate of writing down allowance is proportionate to the length of the chargeable period (Section 24(2)(a) CAA 1990), this will in effect restrict the writing down allowance rateably to the length of the part of the chargeable period from when the expenditure is incurred ie 90/400 x 400/365 x 25% = 90/365 x 25% in the above example if allowances are due at 25%.

The balance of expenditure not added to the pool may be added to the pool for the following chargeable period.